Life is made up of countless decisions. Some have major consequences, others not so much; some are simple, others are frightfully complex. In the business world, decision-making mechanisms have been studied extensively and we are now beginning to get a clearer idea of best practices in this domain. Suited to stable environments, these best practices are often based on the assumption that the decision-maker possesses a decent amount of information on the situation. However, in uncertain situations, information is scarce. How can we make decisions without sufficient data or points of reference?
In a recent BBC podcast, Margaret Heffernan quizzed political and economic leaders on “the fine art of decision-making in uncertain times”, concluding with a short list of useful tips on how to reach a decision when you don’t really know.
The difference between uncertainty and risk
The process of making decisions in risky situations is relatively clearly-defined: identifying possible outcomes, evaluating potential impact and estimating the likelihood that they will occur. Based on impact and probability, we can calculate a course of action. For example, somebody who owns a house in an area prone to flooding may choose to forestall that risk (by constructing a dyke), to avoid it (by moving), to transfer it (by taking out insurance), to reduce it (by raising the furniture off the ground) or simply to accept it.
This approach is not suited to situations characterised by uncertainty, where it is not possible to identify the possible outcomes, nor to calculate their respective probability or impact. Uncertainty is very different from risk, and risk management models become ineffectual in situations defined by uncertainty. Uncertainty impedes our understanding of what is happening, what the consequences might be, and what actions we might take.
So what can be done?
5 tips for making decisions in uncertain situations
- Have a vision of what you wish to achieve, rather than comparing alternatives. Identify the question you want to answer, define the criteria of success and evaluate the possibilities based on their impact on the realisation of your vision. This will help you avoid the trap of comparing options for which information is lacking.
- Form a group within which dissenting voices can make themselves heard. Uncertain situations are, by their very nature, equivocal and ambivalent. Bringing together participants with different perspectives on the situation allows for a more comprehensive vision. Airing different opinions serves to enrich the debate.
- Act rapidly. Waiting will reduce the number of options available to you. Making a decision rapidly allows you to act fast and boost your chances of getting out of the uncertainty. Seek counsel in action.
- Do not wait for more information before taking action. Wanting more data is not a bad thing, since information tells us more about the situation and allows us to attain a more comprehensive understanding. But waiting and gathering more data come at a cost, namely the lack of a decision. Moreover, the information we need is often not available (we can access information about our lived experiences and imagined outcomes, but uncertainty is necessarily unpredictable).
- Create options and boost reversibility. When making decisions rapidly, the risk is that you will make the wrong decision through lack of information. Identifying several options and determining the conditions of their implementation will enable you to switch from one decision to another if new information should arise.
Cultural change
Some of these practices are already well-established within organisations (adopting a vision, creating teams with dissonant voices), while others, particularly the last two, run counter to the received wisdom that everything is knowable, that we need information in order to act, that we must weigh up all of the options before reaching a decision, and that we must never go back on a previous decision for fear of losing face.
Dealing more effectively with uncertainty requires us to change our whole attitude towards knowledge and decision-making, not just update our project management tools. First and foremost, we must acknowledge that there is more to be learned from action than reflection, and that it is better to change opinion quickly than to waste time forming an opinion.
Above all, we must never forget that uncertainty is central to our lives and that it also represents an opportunity for personal and collective growth.
This article was first published in French on Prof. Benyayer’s blog.
This post gives the views of its author, not the position of ESCP Business School.